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Civil Code reform to spark new lending

BUSINESSES in the under-invested small- and medium-sized sector will be able to get loans far more easily under legislation recently approved by government.
Changes to the Civil Code approved by ministers April 17 will allow businesses in the sector, seen as crucial to the future competitiveness of the Slovak economy in an enlarged European Union, to use movable assets as collateral on loans, while banks' positions as creditors will also be strengthened.
"This is a really important change and a big step forward. It's perfect legislation and will bring massive opportunities," said Vladimír Tvaroška, advisor to Deputy PM for the Economy Ivan Mikloš.

BUSINESSES in the under-invested small- and medium-sized sector will be able to get loans far more easily under legislation recently approved by government.

Changes to the Civil Code approved by ministers April 17 will allow businesses in the sector, seen as crucial to the future competitiveness of the Slovak economy in an enlarged European Union, to use movable assets as collateral on loans, while banks' positions as creditors will also be strengthened.

"This is a really important change and a big step forward. It's perfect legislation and will bring massive opportunities," said Vladimír Tvaroška, advisor to Deputy PM for the Economy Ivan Mikloš.

Under the new legislation, which will now go to parliament and could come into effect in January next year, small and medium-sized enterprises (SMEs) will be able to use assets such as cars and technology as collateral for loans.

Many firms have previously complained that their fixed assets were simply not large enough to use as collateral on loans.

Banks will also be placed on an equal footing with tax offices as creditors. Under present laws, tax offices are guaranteed priority ahead of banks on claims in bankruptcies.

The change is expected to make banks more willing to give companies money knowing that they have the same chance as tax collectors of recovering debts when firms are declared bankrupt.

"This is definitely an important step forward for the development of the SME sector, even if the effect on tax collection does create a small fiscal risk," said Pavol Pop, an analyst at Poštová banka.

Business leaders have repeatedly said conditions for obtaining loans are against them, and that banks are unwilling to support them with credits.

While interest rates have dropped from as high as 35 per cent at the start of the current government's term in late 1998 to just into double figures for some loans today, bank lending has not risen with the rates fall.

According to the central bank, the volume of loans extended to businesses and households in January 2001 grew at between 4.5 and 5 per cent year-on-year.

In January 1993 the stock of loans to small businesses and households stood at Sk214 billion. That cumulative total stood at Sk450 billion by the end of last year.

Restructuring of the sector since 1999 and the reluctance of banks to loosen restrictive lending criteria resulted in a general credit crunch and a stagnation of the sector. Former state banks, which under past management operated loan policies based on cronyism and political ties, still prefer to invest in state paper.

Nevertheless, western ambassadors have called on more to be done for SMEs in Slovakia, and economists have argued that the sector must be helped to expand if Slovak businesses are to compete on the EU market, possibly as soon as 2004.

The legal changes have been welcomed by both business associations and banks. The Slovak Association of Entrepreneurs said after the government's approval of the amendments to the Civil Code that the changes were vital for SMEs.

Officials at the two biggest banks in the country, Všeobecna úverová banka (VÚB) and Slovenská sporiteľňa (SLSP), have said they expect more loans to be provided to the sector in the future.

"The change is an important reform step. The SME sector suffers from a lack of investment and this measure can positively change that situation," said Peter Švec, spokesman for SLSP.

"The change has solved a lot of problems for creditors and secured our rights. SMEs should see more loans coming from the banking sector."

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